Ellume’s $58m bailout fails as rival misses deadline

Liam WalshReporter

Jun 15, 2023 – 4.30pm

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A $58 million deal to bail out the failed Australian arm of Ellume, a once soaring biotechnology star supplying COVID-19 tests, has fallen over.

The financial lifeline had been proposed by a Gold Coast firm with controversial links to testing, but Ellume’s administrators said it failed to come up with the required funds.

Ellume founder Sean Parsons with a home COVID test in 2020. Attila Csaszar

It means Ellume’s Australian arm – the head of the group – has tumbled into liquidation, costing at least 40 jobs and imperilling almost $200 million in creditor claims. The Australian business owned the shares in its North American subsidiary, which is not in administration and has a contract with the US Department of Defense.

“We are disappointed with the outcome, and it’s unfortunate that the company has had to be placed into liquidation after the promising … proposal,” FTI Consulting’s Joanne Dunn, one of Ellume’s administrators, told The Australian Financial Review.

Brisbane-based Ellume was a biotechnology start-up initially concentrating on influenza tests. It was founded in 2010 by Sean Parsons, who developed the idea after working as a Brisbane doctor in medical emergency during the swine-flu epidemic, and its backers included former mining magnate Paul Darrouzet.

The outfit switched its attention to coronavirus home tests when COVID-19 spread globally in 2020, finding a market in the US. It was already bleeding money but a key disaster struck with a recall in late October 2021 after some tests had false positives.

That recall cost $37 million alone, according to an administrators’ report. Other reasons for failure cited by the directors included the US government rolling out free rapid antigen tests, smashing demand for Ellume’s product, and an inability to raise new funds.

The administrators also cited other potential factors including a loss of key staff and low levels of investment in non-COVID-19-related products following the pandemic. Ellume appointed Ms Dunn and John Park in August last year.

Creditors, which include unsecured noteholders, were owed between $195 million and $234 million, although almost $35 million of that came from related entities.

A white knight appeared after a sale process with Hough Consolidated signing a debt-restructuring deal to revive the company. It would pay $US38 million ($58 million) along with ongoing operating costs in acquiring Ellume.

While $3.2 million had been paid for operations so far, Hough Consolidated had not paid an additional $1.25 million by this week, despite deadline extensions, the administrators said.

The administrators will now attempt to sell assets including two Brisbane manufacturing facilities with robot arms and intellectual property. The fate of the remaining staff of about 40 is still uncertain with some further losses possible.

“If we’re able to find someone that might be interested in the operations of one of the facilities – they may take on some of the staff. It also depends on what the US Ellume business continues to do. That business might take on some of the Australian staff as well,” Ms Dunn said.

US operations

Court proceedings in January had flagged liquidating the Australian entity, which has a US drug regulator licence that involves the US government contract, could trigger bankruptcy proceedings for Ellume’s North American arm. But Ms Dunn said the situation differed now as that contract would expire in a few weeks, so the US entity, whose directors include Dr Parsons, might look at any new agreement.

Hough Consolidated has not paid the $58 million yet on top of the latest operating expenses. “They have advised us their funders haven’t come through with the money,” Ms Dunn said. She said they had been advised UK-based private equity would finance the deal.

Company searches show Hough Consolidated’s sole director is Jackson Hough, 32, a former electrician who went into testing during the COVID-19 pandemic.

He is the sole director of COVID-19-testing company Hough Pharma, which the Therapeutic Goods Administration said it had fined $106,560 for allegedly failing to provide information demonstrating the safety and performance of three tests. Hough Pharma reportedly rejected the claims.

Mr Hough was also targeted in Queensland Supreme Court litigation by a company of his father Greg Hough’s in a dispute between the two over shareholdings in Hough Pharma. That matter settled late last year with no findings made.

But a federal court then in March this year appointed liquidators Cameron Crichton and John McInerney of Grant Thornton to Hough Pharma following a winding up action from logistics business Ligentia.

Ms Dunn said the administrators had spoken to lawyers of Hough Consolidated, which was a separate entity, about that litigation and were told there would be no impact on the restructuring deal regardless of events at Hough Pharma.

The liquidators can look at potential recoveries, including investigating any insolvent trading claims against directors of Ellume’s Australian company.

The administrators’ preliminary investigations, published in their creditor report, said the company appears to have been insolvent from May last year, several months before their appointment. But it noted directors had potential defences including citing “safe harbour” restructuring work they had done earlier.

Attempts to obtain comment from Mr Hough and Dr Parsons were unsuccessful.